Think You Know Economics? You Don’t Know Mosler

The 7 Deadly Innocent Frauds of Economic Policy | Warren Mosler

For several years now I’ve studied an emerging field of economics that has come to be known as Modern Monetary Theory, or MMT.

MMT has two essential, but very different components to it.  The first is an accurate description of the inner workings of our monetary system, the second is a series of policy prescriptions.

Some of the policy prescriptions are quite radical and I have not reconciled myself to endorsing them, but am open to learning more.  The portion that is most intriguing to me is the description of the inner workings of our monetary system.  Like most Finance majors, I took a lot of Economics classes in college and thought I understood how things worked.  I was wrong.  Most current textbooks essentially are based upon a monetary system that existed in 1970, they’ve collectively failed to recognize that everything changed when Nixon took us off the Gold Standard.  Yes, they all mention Bretton Woods and flexible exchange rates and currency regimes, but they all fail to adequately describe how things really work.

What I like about MMT is that the portion describing our monetary system is not liberal or conservative, it’s not Democratic or Republican – it just is.  There is another branch called MMR or Modern Monetary Realism that seeks to separate the policy prescriptions from the system description.  You can read more about MMR at a favorite blog of mine, The Pragmatic Capitalist.

One of the major Modern Monetary Theorists is Warren Mosler and he wrote a book (link is above) titled The Seven Deadly Innocent Frauds of Economic Policy.  While he does focus a lot on policy prescriptions, he also communicates in a very simple to understand manner how our currency system in this country actually works.

While trolling another blog by another MMT pioneer Bill Mitchell (Billy Blog) I found a link to the Seven Deadly Frauds as a PDF.  Now you can access this book at no cost by clicking the above link.  You can ignore the politics – but pay attention to how our currency actually works, it will give you a new perspective on our debts and deficits, one that will quite literally blow your mind. It will help you understand why Europe and the United States are completely different in their currency structure and why that matters.

So what are these Deadly Innocent Frauds:

  1. The government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.
  2. With government deficits, we are leaving our debt burden to our children.
  3. Government budget deficits take away savings.
  4. Social Security is broken.
  5. The trade deficit is an unsustainable imbalance that takes away jobs and output.
  6. We need savings to provide the funds for investment.
  7. It’s a bad thing that higher deficits today mean higher taxes tomorrow.

Caution: This knowledge will challenge your current way of thinking, as always call or e-mail with questions.

Scott Dauenhauer, CFP, MSFP, AIF

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